Should your business adopt mobile payments?

One-third of consumers expect mobile money will dominate payments within a decade, yet merchants have been slow to catch up. Here's why you should consider mobile payments, and how to get started.

Image: iStockphoto/brians101

Consumers are more eager to adopt mobile wallet technology than many companies realize, according to a recent report from NTT DATA, Ingenico ePayments, Oxford Economics, and Charney Research.

Researchers surveyed 2,000 consumers and 300 executives globally. About a third of consumers said they expect mobile money (that is, paying for a product using a phone instead of cash or credit) will dominate payment methods over cash and credit cards in the next decade. Yet 40% of executives said they believe payment methods will stay the same over that period of time, and 31% said they believe mobile money does not apply to their business.

Among businesses that don't accept mobile payments, 41% said it is because customers prefer paying by cash or check. But 70% of consumers reported they would like to be able to make travel, entertainment, technology, retail, and healthcare purchases with their mobile phone or tablet, the survey found.

"There's a potential missed opportunity here—if companies don't get up to speed in delivering what people, especially younger people, expect in terms of digital wallets, payment ease, and security, they will lose out to providers that do," said Joan Warner, managing editor for Thought Leadership at Oxford Economics, and a senior analyst for financial services, who contributed to the report.

Consumers place nearly identical value on acceptance, security and convenience as the drivers of mobile payment adoption, the survey stated.

"Cash usage is definitely declining and is likely to continue declining, and an alternative electronic payment type will continue to rise," said Gartner analyst Penny Gillespie. "Based on what we know today, it is likely to be executed by a mobile device but it can be anything that holds a chip and can interact with the POS or web."

Young people trust tech companies more than banks when it comes to financial services, the survey found. "It isn't totally surprising, given that they grew up during the financial crisis," Warner said. "Payment companies like MasterCard and American Express may seem to have an incredible edge in this business because of their legacy and rand, but the truth is that a really good app can gain market and wallet share very fast."

PayPal is a good example of this, Warner said. Another is Venmo, which solved a specific problem: Needing to split bills. "This is not a financial company, it's a tech company," Warner said. "The big takeaway for companies is it's an open field," Warner said.

Tips for businesses

Businesses should "definitely" consider adopting mobile payments, said Brendan Miller, an analyst at Forrester Research. Customers often abandon online mobile checkouts when they ask for too much information, he said. But mobile payments can reduce the friction of checking out.

However, mobile has yet to overcome the convenience factor of the current system. "Consumers still find it easier to pull out a credit card and swipe it, versus pulling out their phone," Miller said. "There are things retailers need to do to make the in-store experience more convenient for customers."

Starbucks is the classic example of a successful mobile payment, according to Gillespie: The company has a frequent user base, and tied mobile payments to a loyalty program to encourage usage. It also improved the user experience with faster payment and the ability to order in advance, and offers an easy in-app experience, she said.

"Customers will only change their behavior if the behavior change gives them something they want, need or value," Gillespie said. "This is why mobile has been poised for takeoff for years."

Walmart, for example, introduced mobile payments into its mobile app in 2015. Reports are that the payment app has been very successful in improving the store shopping experience, Gillespie said. "I think success comes from the fact that customers already have their mobile app opened in the store to assist with shopping, and the natural tendency is to leave it open and checkout versus digging in a physical wallet or opening another app," Gillespie said. "It's an added convenience."

Right now, often the consumer in-store mobile payment experience isn't very different from swiping a card, Miller said. But merchants can eliminate some of the prompts on the terminal for an easier experience. For example, it's unnecessary to ask a customer for their signature or pin number, because they have already authenticated their identity with a fingerprint.

"There are things retailers can do to streamline that terminal logic that would make it more convenient for customers to pay with mobile," Miller said.

Creating a loyalty program that integrates with Apple Pay or Android Wallet is also a good idea to encourage mobile payment usage.

Retailers often believe they don't need to focus on mobile yet, because it has yet to replace the consumer's habit of using credit cards or cash, Miller said. "That's the wrong approach—if you wait for the inflection point, it will be too late," he added.

Much of retailers' payment attention in 2016 has been focused on implementing encryption and tokenization with chip card acceptance, Miller said. The year 2017 will likely be a "pivotal" year for mobile payment adoption, now that most merchants have implemented the chip system.

The 3 big takeaways for TechRepublic readers

Though one third of consumers reported expecting mobile money to be more popular than cash or credit cards in the next decade, 40% of businesses said they expect payment methods to stay the same, according to a recent survey from NTT DATA, Ingenico ePayments, Oxford Economics, and Charney Research.

Companies should consider integrating mobile payments into their systems, analysts said, and encourage the use of mobile by tying it to loyalty programs.

This coming year will likely see large growth in the mobile payment space, experts said.

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